Don’t be afraid to trust other people with your money! Although you’ve come to the Thousandaire stock pick because you want to be slightly more hands on with your financial future, there is nothing wrong with investing your money in mutual funds or similar products.
Put Your Money into a Fund
At first look, this would seem to be in direct conflict with Thousandaire advice of the past. In fact, we have previously pointed out that the fund ‘experts’ have broadly failed to beat the stock market index. However, there are a number of benefits to these funds.
- Funds can rebalance themselves (such as target retirement funds). These funds automatically take care of the ‘correct’ stock-bond-cash allocation. This takes a lot of work (and potentially trading fees) off your shoulders. This service could easily be worth a 2% performance drop per year.
- Funds can invest in other countries. You may not know how the stock market works in Kazakhstan, or speak Kazakhstanian. However, a fund manager may.
- Funds have more money. How often does a friend come to you and say ‘I have a great investment opportunity, it’s only a billion up front’. You may not have those friends (or billions) but funds certainly do.
- Funds can diversify. As an individual investor it’s often hard to diversify. For example, if you wanted to buy one share of each company in the S&P500, it would cost you $3,500 in trading fees alone. A fund can pool your small money with others and make more cost efficient purchases.
The biggest key is not to trust somebody with your money BLINDLY.
Which Mutual Fund is Right for Me?
There are thousands of funds, each with a different stock mix and a different investment goal. In the future we will cover some of the different types of funds. Today, we will go with one of the easiest to purchase and easiest to research…Berkshire Hathaway.
Easiest to purchase? Berkshire Hathaway trades under the symbols BRK.A and BRK.B (Class A and B shares). If you can afford BRK.A, why are you reading personal finance blogs? The Thousandaire portfolio will purchase BRK.B which is essentially the same stock with limited voting and conversion rights. The reason this fund is easiest to purchase is because it trades on the stock exchange like a regular company. In fact this fund almost is like a regular conglomerate since it often invests by purchasing whole companies. Other funds often require a minimum purchase (often ~$3,000).
Easiest to research? There are millions of articles and blogs about Berkshire Hathaway and I would argue that it is one of the most transparent and also most researched funds out there. How many other funds have 50 years of proven track record? How many other fund managers have had more than 5 books written about them? Anything you would like to know about this fund or fund manager is easily accessible.
Word of Caution:
Every mutual fund is different and has a different investment goal and strategy. Although mutual funds take a lot of work off the shoulders of the individual investors you should not trust them blindly. Make sure you read the morningstar report fully, but don’t stop there. See how it compliments other fund purchases you have made. See what news stories and blogs say about the fund. Research the top holdings of the fund further. You don’t want to end up purchasing shares from Bernie Madoff.
Disclosure:
I currently do not have a position in this stock and do not plan to do so for the next 90 days.
Kevin’s Take:
I currently do own a few shares of BRK.B and I love it for one reason; I trust Warren Buffett. As The Hoff mentioned earlier, Warren Buffett is one of the most successful investors in the history of the world. I have a blogger friend who has devoted his entire blog to “Buying Like Buffett” because Buffett simply knows what he’s doing. It’s a lot easier to just invest in a genius instead of trying to be one yourself. Sometimes it’s nice to be lazy. And speaking of lazy, take a look at The Lazy Song by Bruno Mars and keep it in mind when you come back for tomorrow’s post.
Important to note that ALL ideas, thoughts, and/or forecasts expressed or implied herein are for informational and entertainment purposes only and should NOT be construed as a recommendation to invest, trade, or speculate in the markets.
I’ve never been a fan of any kind of mutual funds. However in the last quarter of 2010, i decided to place a small amount of my money in this investment vehicle largely on some the reasons you have highlighted.
I personally went into a combo approach of long term low risk (30%) and the remaining in aggressive funds. The agent has been great and keeping me posted and switching my funds (FOC as it’s done online) as and when the market turns.
I’m keeping my fingers crossed that the professional fees paid to them will warrant a better than mkt return in the mid to long term range.